Avis 2007 Annual Report Download - page 57

Table of Contents
For more information regarding guarantees and indemnifications, see Note 18 to our Consolidated Financial Statements.
ACCOUNTING POLICIES
Critical Accounting Policies
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and
assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that
are inherently uncertain as they pertain to future events and/or events that are outside of our control. If there is a significant unfavorable change
to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We
believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented
below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.
However, our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of
our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Goodwill and Other Indefinite-lived Intangible Assets. We have reviewed the carrying value of our goodwill and other indefinite-lived
intangible assets as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” In performing this review, we are required to make an
assessment of fair value for our goodwill and other indefinite-lived intangible assets. When determining fair value, we utilize various
assumptions, including the fair market trading price of our common stock and management’s projections of future cash flows. A change in
these underlying assumptions will cause a change in the results of the tests and, as such, could cause the fair value to be less than the respective
carrying amount. In such event, we would then be required to record a charge, which would impact earnings. We review the carrying value of
goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may
have occurred.
Our goodwill and other indefinite-lived intangible assets are allocated among three reporting units. A $1,195 million charge was recorded for
the impairment of goodwill at each of our reporting units to reflect the decline in the fair value as evidenced by a decline in the market value of
our common stock. Domestic Car Rental operations recorded $786 million of the goodwill impairment, International Car Rental recorded $268
million and Truck Rental recorded $141 million. Following the goodwill impairment charge, the aggregate carrying value of our goodwill and
other indefinite-lived intangible assets was approximately $1.0 billion and $690 million, respectively, at December 31, 2007.
Vehicles. We present vehicles at cost, net of accumulated depreciation on the Consolidated Balance Sheets. We record the initial cost of the
vehicle net of incentives and allowances from manufactures. We acquire our rental vehicles either through repurchase and guaranteed
depreciation programs with certain automobile manufacturers or outside of such programs. For rental vehicles purchased under such programs,
we depreciate the vehicles such that the net book value on the date of sale or return to the manufacturers is intended to equal the contractual
guaranteed residual values. For vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs, we depreciate
based on the vehicles’ estimated residual market values and their expected dates of disposition. See Note 2 to our Consolidated Financial
Statements.
Income Taxes.
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enactment date.
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